Threat of falling high status and corporate bribery: Evidence from the revealed accounting records of two South Korean presidents

• DOI: http://doi.org/10.1002/smj.2747
• Date: 01 April 2018
• Author: Yujin Jeong,Jordan I. Siegel
• Published date: 01 April 2018

RESEARCH ARTICLE

Threat of falling high status and corporate bribery:

Evidence from the revealed accounting records of

two South Korean presidents

Yujin Jeong

1

| Jordan I. Siegel

2

1

Department of International Business, Kogod

School of Business, American University,

Washington, District of Columbia

2

Strategy Area, Ross School of Business,

University of Michigan, Ann Arbor, Michigan

Correspondence

Yujin Jeong, Kogod School of Business,

American University, 4400 Massachusetts Avenue

NW, Washington, DC 20016.

Email: yjeong@american.edu

Funding information

Academy of Korean Studies, Grant/Award

number: AKS-2015-R33

Research Summary: Social status and its dynamics may

be an important predictor of which firms will engage in

large-scale bribery. Prior theory is incomplete, however,

and prior studies have lacked comprehensive and reliable

data on firm-level bribery decisions. We offer a new theo-

retical prediction and a novel data set on high-level cor-

ruption in South Korea, where the accounting records of

two presidents in the 1987–1992 era were exposed to

after-the-fact legal and public scrutiny. We find that, con-

trolling for a range of alternative explanations, the threat

of falling high status—that is, the combination of long-

standing high social status with current-period mediocre

economic performance relative to that of industry peers—

is a statistically and economically meaningful predictor of

increases in the amount of large-scale corporate bribery.

Managerial Summary: What leads companies to engage

in large-scale bribery of senior politicians? Our concept

of “threat of falling high status”refers to a circumstance

where companies that have historically enjoyed high sta-

tus through their owner families’elite marriage networks

experience mediocre economic performance relative to

their peers. We show that this threat of falling high status

is a notable determinant of large-scale corporate bribery

of senior politicians, using court data on corporate bribery

of two South Korean presidents during 1987–1992. The

implication of our study is twofold. Companies can

strengthen internal control systems to avoid any large-

scale illegal activities at a higher level. Law enforcement

agencies can also implement targeted monitoring pro-

grams to preempt illegal activities among companies fac-

ing the threat of falling high status.

Received: 1 December 2016 Revised: 8 October 2017 Accepted: 9 October 2017 Published on: 22 February 2018

DOI: 10.1002/smj.2747

Strat Mgmt J. 2018;39:1083–1111. wileyonlinelibrary.com/journal/smj Copyright © 2017 John Wiley & Sons, Ltd. 1083

KEYWORDS

bribery, corruption, nonmarket strategy, political

network, status

1|INTRODUCTION

One of the principal ways in which firms can seek competitive advantage is through nonmarket

strategy (Baron, 2013), defined as seeking to influence governmental actors to attain favorable treat-

ment and regulation. Despite the fact that much of the nonmarket strategy literature has focused on

lobbying and political contributions, and despite the magnitude of corruption in the global economy,

estimated at $1 trillion per year (Kaufmann, 2006, p. 83), few studies have examined high-level cor-

ruption where companies pay bribes to senior politicians. Pioneering work in the theory of corrup-

tion has been mostly based on political economy (Rose-Ackerman, 1975, 1978, 1999; Shleifer &

Vishny, 1993). Evidence on the firm-level determinants of bribery has largely drawn on surveys and

proxy indicators (e.g., Chavis, 2013; Clarke & Xu, 2004; Martin, Cullen, Johnson, & Parboteeah,

2007; Svensson, 2003); two notable exceptions are Jeong and Weiner (2012), using data from the

United Nations' Oil-for-Food Program (UN OFFP) made available as a result of public investigation,

and Cheung, Rau, and Stouraitis (2012), utilizing media-reported data on cases of corporate bribery.

Building on this pioneering work, we study what leads firms to engage in large-scale bribery of

high-level politicians. Studying this question from a nonmarket-strategy perspective matters: high-

level politicians are known to make decisions that critically impact the competitive landscape.

Inspired by the fields of sociology, behavioral economics, and criminology, we examine the effect

of a threat of falling high status on the amount of bribes that firms paid. We term “threat of falling

high status”the concept in which a firm has longstanding high social status (defined here as being

at the center of the elite marriage network between controlling owner-families) but is threatened

with an impending fall in status due to current-period mediocre economic performance relative to

that of industry peers. We test our theoretical concept using extensive documentation of high-level

bribery in South Korea, where two former presidents, Chun Doo-Hwan (Chun) and Roh Tae-Woo

(Roh), received bribes from business groups

1

during their terms of office and were subsequently

prosecuted. Their internal accounting books were unexpectedly revealed to the public in the course

of the country’s democratization.

Scholarly efforts to explain why some firms engage in large-scale bribery of high-level govern-

ment officials while others do not have run into three main challenges. First, the illegal nature of

corruption resulted in few past studies of firm-level determinants of bribery based on reliable data.

To our knowledge, prior to the current study, only the data on the UN OFFP used in Jeong and Wei-

ner (2012) specify the amounts of bribes to high-level government officials paid by individual firms,

in that case to the Iraqi government, as a result of public investigation.

2

1

Business groups in South Korea are also called chaebol, a family-controlled and diversified group of businesses and similar to those

business groups that exist through most of the world outside of the U.S. and the UK.

2

Several other studies, though not focused on firm-level determinants, are noteworthy for utilizing unique data to measure the social-

welfare costs of bribery (e.g., Fisman & Miguel, 2007; Fisman & Wei, 2009; McMillan & Zoido, 2004; Olken & Barron, 2009;

1084 JEONG AND SIEGEL